The Ministry of Road Transport and Highways is implementing a significant policy change, replacing the least cost (L1) bidding mode with the highest technical score (T1) for selecting companies to prepare detailed project reports (DPRs). This change will apply to all highway agencies under the ministry, including the National Highways Authority of India (NHAI).

Under the new system, agencies will fix the cost for consultancy services (bid price), and companies will be chosen based on their technical competence and past performance ratings. This decision follows a trial period within the NHAI, which began in September of last year, using only fixed costs and the highest technical score for bidding out works. Officials have deemed the experiment "good" thus far. The policy change aims to address the deterioration in the quality of project reports resulting from consultancy firms securing projects by quoting unsustainably low prices. Poor project preparation has been identified as a factor that negatively impacts the quality of work and causes delays in project implementation.

A senior official noted that the new provision of rating bidders and assigning 30% marks for technical scores will attract higher quality players to bid for projects. In some instances, prices quoted for preparing DPRs were as low as Rs 70,000-Rs 80,000 per km, an amount insufficient to ensure a good quality DPR. The ministry is now fixing the cost at approximately Rs 4-5 lakh per km for a 4-6 lane highway, which is about 0.5% of the overall project cost. In comparison, developed countries like Japan and Australia invest significantly more in DPR preparation, sometimes paying around 10% of the project cost.

Furthermore, the Ministry of Road Transport & Highways' (MoRTH) revised framework, implemented in April 2025, removes the 3% cap on Additional Performance Security (APS) and introduces stricter penalties for aggressive underbidding. The policy shift comes after most central government road projects between January 2024 and March 2025 were awarded at steep discounts, with a median bid 25% below estimated costs. The new norms now trigger APS for bids below 10% of project cost, versus 20% earlier and impose a two-tier penalty system: 0.1% APS for every 1% discount between 10-20%, and 0.2% plus a flat 1% for discounts exceeding 20%.

While these changes will promote execution discipline and deter speculative bidding, they'll immediately increase working capital needs for smaller contractors with limited bank guarantee capacity. Over time, however, the sector may see more participation from well-capitalized players, improving project quality. The removal of the APS cap means contractors submitting deeply discounted bids could now face performance security requirements exceeding 5% of project value. MoRTH's move aligns with its broader efforts to ensure timely and quality execution of national highway projects under flagship programs like Bharatmala Pariyojana. Contractors may need to revisit bidding strategies and strengthen their financial planning to adapt to the new regime.